Hello and please help with my MESS!

[geoloco]

Hi Everyone,

I've been lurking around this board and others for quite a while now. I think I am ready for my first post and God knows I need a lot of help. You will see that my "portfolio" is quite the MESS. It's not all my fault since a lot of this came in an inheritance from my dad. I have finally settled the estate and need to get my house in order. A little background on me: 60 yrs. old planning to retire at 62 due to numerous health issues. Divorced with no dependents. Plan to retire and live in Mexico where I vacation every year. Actually this is the only place where I can probably afford to retire. I will take S.S. at 62. Pension will be a grand total of $100.00 per month. I'm sure many of you are probably thinking I'm making a big mistake in retiring early but this is something I must do for both my HEALTH and SANITY. Any and all advice and suggestions will be greatly appreciated and accepted.I guess I'm looking for the best way to generate additional income to S.S and the MEAGER pension. I probably would like to be about 60% Equities-30% Bonds-10% Cash. Also think I want to stay mostly with Vanguard. Anyway here it is - Read it and Laugh or Weep. Thanks in advance for your thoughts,suggestions and prayers.* George

TAXABLE ACCOUNTS VANGUARD
Wellington 8.50% VWELX
Wellesley 7.50% VWINX
Div. Appreciation index 1.00% VDAIX
Prime Money Market 2.00%
Inter-Term-Invest-Gr 2.00% VBIIX
Short-Term-Invest-Gr 2.00% VBISX

VBS HOLDINGS
Walgreens 30.00% WAG
Exelon 28.00% EXC

NON-TAXABLE IRA ACCOUNTS VANGUARD
Asset Allocation 7.50% VAAPX
Growth Index 3.00% VIGRX
Prime Money Market 0.50%

VBS HOLDINGS
Lucent 0.25% LU

AMERICAN CENTURY
Int. Growth Index 1.00% TWIEX

JACOB INTERNET 0.25% JAMFX

ROTH IRA ACCOUNT VANGUARD
Total Int. Stock Index 4.00% VGTSX

401K
SEI Div. Global 0.50% SAGSX
SEI Lg. Cap Val. 0.50% TRMVX
SEI Sm. Cap Val. 0.50% SESVX
SEI Int. Trust Eq. 0.50% SEITX
SEI Stable Value 0.50%

100.00%

[Nords]

Welcome to the board, George.

Originally Posted by geoloco

I guess I'm looking for the best way to generate additional income to S.S and the MEAGER pension. I probably would like to be about 60% Equities-30% Bonds-10% Cash. Also think I want to stay mostly with Vanguard. Anyway here it is - Read it and Laugh or Weep. Thanks in advance for your thoughts,suggestions and prayers.* George

Better posters than me will help you cut through the fund overlap, although I'm pretty sure you'll want to dispense with the Walgreen & Exelon stock. And I bet the answer is going to consist of large helpings of Wellesley & Wellington.

But here's another question: Assume that you convert these investments & accounts to your desired 60/30/10 asset allocation. After taxes, adding in your pension & Social Security, how much are you starting with? What are your expenses, especially for health insurance between age 62 & Medicare? How does the portfolio vs expenses look in FIRECalc?

[FinanceDude]

Without knowing the approximate dollar amount you are working with, it is dificult to know how to help. You have some overlap and probably can dump some of the stock, as you would have gotten a run-up in basis on the stock on your fathers DOD (date of death).

You can e-mail me privately if you want more help.

[boutros]

You seem to have a good understanding of what types of investments that you would like to use. I would create a paper portfolio from scratch that would suit your needs. Figure out what the costs/taxes would be to move to the portfolio and make a decision investment by investment on what to keep and what to chuck.

[Sheryl]

I'm not one of the financial experts around here by a long shot, but your port. looks a lot like mine did a year or so ago after my mom passed.

Too many funds overlapping and too much in too few individual stocks. *

From your post it sounds like you know what you need to do... just have to bite the bullet and dig in. * *What I did was look at each fund individually *- threw out a few right away that had very high fees and mediocre performance. * Moved things like my ROTH out of the expensive Morgan Stanley account (broker used to be a friend, but got canned) and into Fidelity where I can see it all on one statement, and manage it all on line. *

While Vanguard is still more of a favorite on this board (and I have a the STAR fund and a bond fund there) I and a few others (JP are you out there?) have a preference for Fidelity based on good service, good performance and low fees.

Good luck, and welcome to the board!

[mickeyd]

VBS HOLDINGS
Walgreens 30.00% WAG
Exelon 28.00% EXC

With almost 60% of your investments in only two individual stocks, I would think long and hard about getting this diversified. Being in your taxable account, of course, brings up possible tax problems that a tax deferred situation would not, but this is a very scary situation that you should look at ASAP.

Vanguard ( and others) offers a financial planning service that may be of help in arriving at a more diversified portfolio.

[AltaRed]

Originally Posted by Nords

But here's another question:* Assume that you convert these investments & accounts to your desired 60/30/10 asset allocation.* After taxes, adding in your pension & Social Security, how much are you starting with?* What are your expenses, especially for health insurance between age 62 & Medicare?* How does the portfolio vs expenses look in FIRECalc?

I concur with Nords in that I would run a 60/30/10 allocation through FIRECALC (assume total $$ equal the total $$ of your investments now), along with your pension, SS, etc and see if that supports your proposed lifestyle 2 years from now. And maybe pick 0.5% for your MER costs on the assumption you will be doing a big overhaul of your asset base. *If the answer comes back satisfactory, then you have a good handle and confidence on your asset allocation. Personally, I would not exceed 60/30/10 given the low value of your pension.

I would concur staying with Vanguard as most of the investments are already there or can be transferred there.

For tax efficiency reasons, I would tend to put most of your FI component in your not-taxable accounts. Since those accounts won't hold 40% of your portfolio, that will mean you will need to have some FI assets in your taxable accounts. But no big deal. That is an okay problem to have because you will want to keep sufficient cash and FI component in your taxable account anyway to tap into for annual living expenses (above pension and SS).

I would think you are overextended in your individual stock investments. *These may be appropriate for complete liquidation. Rule of thumb is not to have any more than 10% in any one investment, although I would say that doesn't necessarily apply to good ETFs or Vanguard funds like Wellington and Wellesley which by the fact they are diversified investments already, you could hold healthy components of these.

Overall, you could collapse everything you have into 10-15 individual holdings. All of your 401k holdings could be collapsed into one Vanguard VTI ETF or VGTSX like your Roth but convert your non-taxable accounts to FI. *On fixed income, I would tend to a short term bond fund or ETF (duration 3 yrs or less) for some of it, a 5 year CD ladder for some of it, and a MMF fund for the rest (MMF can be part of your cash component).

Let the plan unfold over a period of months. Rome wasn't built in one day.

[geoloco]

Just want to say thanks to those that have replied. I am going to take what you have said and try to put together a revised portfolio based on some of your ideas. I also received some feedback on the "Diehards" forum. Hopefully I will be able to do a little better than what I have now. It will be kind of hard to part with EXC and WAG since they have both been pretty good performers as of late, especially EXC. I plan to sell at least 1/2 of each in the very near future. I will then have to decide how much to continue to hold. Probably 7-10% of my portfolio in ea. I'm thinking of moving the dollar amounts of ea. sale to Vang. Wellington and Wellesley. I think I need help in what I should move or exchange into my regular IRA. I know that's where my bonds should go but they came from my dad's estate. Can I exchange funds between my IRA and taxable accounts. God, this seems like a dumb question
Again thanks for the replies and will be greatful for any additional help.

geoloco

[Nords]

Originally Posted by geoloco

I think I need help in what I should move or exchange into my regular IRA. I know that's where my bonds should go but they came from my dad's estate. Can I exchange funds between my IRA and taxable accounts. God, this seems like a dumb question
Again thanks for the replies and will be greatful for any additional help.

No. You have to buy an equivalent amount of bonds in your IRA (which probably means that you have sell something in your IRA first) and sell the bonds that are in your taxable estate. However there won't be any taxes in the IRA and you'll enjoy a stepped-up basis on the bonds.

I'm not sure you'd want to do that anyway. That asset-allocation advice (to put bonds in tax-deferred accounts) made a lot of sense with tax brackets were higher, but maybe not so much sense in today's lower brackets. And if you're depending on your bond income for today's spending money then an IRA is tough to access without a 72(t).

[brewer12345]

Originally Posted by geoloco

It will be kind of hard to part with EXC and WAG since they have both been pretty good performers as of late, especially EXC. I plan to sell at least 1/2 of each in the very near future. I will then have to decide how much to continue to hold. Probably 7-10% of my portfolio in ea.

You'll have to choose an allocation to these equities that you are comfy with. But just by way of comparison, I consider myself to be pretty darned risk tolerant when I think there is reward to be had. Even though I have a hard time selling (getting better), I get spooked when something goes over 10% of my total portfolio.

[LRS]

We went through something similar when my FIL passed on. Before you sell anything, talk to a tax expert who specializes in estates. Everything you sell will have a tax consequence. Be sure you understand what those consequences mean in dollars before you start moving stuff around.

We talked to a tax expert, then to our paid-by-the-hour financial advisor, made some necessary sales and we were still shocked by our tax bill. One annuity in particular had accrued a lot of value between the time we inherited it and when we sold it. Be sure you have cash on hand to pay your tax when the time comes. Good luck.

[FinanceDude]

Originally Posted by Tawny Dangle

We went through something similar when my FIL passed on. Before you sell anything, talk to a tax expert who specializes in estates. Everything you sell will have a tax consequence. Be sure you understand what those consequences mean in dollars before you start moving stuff around.

We talked to a tax expert, then to our paid-by-the-hour financial advisor, made some necessary sales* and we were still shocked by our tax bill. One annuity in particular had accrued a lot of value between the time we inherited it and when we sold it. Be sure you have cash on hand to pay your tax when the time comes. Good luck.

A Wall Street theorem: "Don't die with a bunch of annuities"..................